Day orders are trading instructions issued by an investor to a broker. The orders are executed during the same trading day as issued by the investor. A day order may be configured as a buy order or a sell order. In the event that the day order is not executed during the same trading session or day, the order becomes null and void.
With most markets, every order is understood to be a day order unless specified by the investor to be otherwise. This approach makes it necessary for brokers to execute orders as quickly as possible. For instance, an investor submits a buy order to his or her broker early in the trading day. The broker will usually execute the order before noon, thus allowing the investor to maximize the benefits from the transaction. Depending on the influx of orders from different clients, the buy order may be processed in a matter of minutes.
The benefits of treating each received order as a day order are realized by both the investor and by the brokerage processing the orders. For the investor, it is a matter of getting the most benefit possible in a short period of time. The sooner that an order to by or sell is processed, the more quickly the investor begins to reap the benefits of making the transaction. By executing the order quickly, the investor has a chance to observe the active trading for the day and determine if the transaction was indeed the right way to go. If an order executed during the morning seems to not look as promising by the afternoon, there is still often time to issue another order that will reverse the impact of the earlier transaction on the investor’s portfolio.
Treating each inbound order as a day order is also in the best interests of the broker. Many brokers apply fees to each transaction that is conducted on behalf of a client. More transactions processed means more revenue earned by the brokerage on any given day. As a side benefit, investors tend to work with brokers who respond quickly to their requests. This means that brokers who execute orders quickly are much more likely to attract and maintain a sizable client base.
As with any type of order, a day order can be canceled at any time prior to the actual execution. However, once a day order has been executed, it cannot simply be voided. In order to correct any set of circumstances created by the original order, the investor will need to provide a new day order to the broker that will undo whatever was accomplished with the issuance of the previous day order.